Order 2 014

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- 4

UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY WASHINGTON, D. C.

Issued by the Department of Transportation

on the 5th day of September 5

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China Eastern Airlines Corporation Limited

Docket OST 20 1 4

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Violations of 49 U.S.C. §§ 41 301 and 41712 Served September 5

, 201 4

CONSENT ORDER

This consent order concerns unauthorized foreign air transportation by China Eastern Airlines Corporation Limited (China Eastern) in violation of 49 U.S.C. § 41301, arising

from China Eastern ’ s marketing and sale of unauthorized codeshare flights operated by another foreign air carrier that did not hold proper authority from the Department.

V iolation s of section 41301 also constitute unfair and deceptive practices and unfair

methods of competition in violation of 49 U.S.C. § 41712. This order directs China

Eastern to cease and desist from such further violations and assesses a compromise civil penalty of $ 40,000

.

Applicable Law

F oreign air carrier s that offer or provide air transportation into or out of the United States must hold a valid permit issue d by the Department o f Transportation pursuant to 49

U.S.C. § 41301, or a valid exemption from this section. The violation of any term,

condition or restriction contained in a permit or exemption constitutes a violation of

s ection 41301. 1 Further, u nder the authority of 49 U.S.C. § 41302, the Department promulgates regulations pertaining to the standards and procedures for issuing a permit authorizing a non

- U.S. citizen to provide foreign air transportation as a foreign air carrier. Among those regulatio ns, 14 CFR 212.9(b)(2) provides that a foreign air carrier shall

1 See, e.g., Thai Airways International Company Ltd., Violations of 49 U.S.C. § 41301, 41703, and 41712,

Order 2008

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- 15; Export Air del Pe ru , S.A., Order 93

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obtain a statement of authorization from the Department for each long term wet lease. 2

Violations of section 41301 also constitute unfair and deceptive practices and unfair methods of compet ition in violation of 49 U.S.C. § 41712.

Background

On June 21, 2012, China Eastern and WestJet , a Canadian carrier, enter ed into a code share agreement providing that China Eastern would market WestJet

- operated flights

within North America under China Eastern’s “MU” flight indicator . B etween June 2012 and September 2013, China Eastern market ed certain flights between Canada and the

United States operated by WestJet under China Eastern’s code on its website and through

the flight schedules in the monthl y Flight Guide Worldwide published by th e Official Airline Guide (OAG)

. WestJet, as the operating carrier of these flights, did not apply for

a statement of authorization from the Department to hold out these codeshare flights in foreign air transportatio n with the Department , and therefore, is in violation of 14 CFR 212.9(b)(2)

. 3 By holding out and selling these unauthorized flights, China Eastern violated 49 U.S.C. § 41301.

Mitigation

In mitigation, China Eastern states that it takes very seriously its obligation to operate in compliance with all DOT economic regulations and did not intend to circumvent or intentionally violate any o f the regulations at issue here

. China Eastern states that when it

entered the aforementioned code share agreement in March 2012 with WestJet , it received approval for this operation from both the Civil Aviation Administration of China (CAAC) and the Canadian Transportation Agency (CTA). China Eastern asserts that upon receiving these approvals, it believed that it had a ll the necessary government authority to institute the codeshare operations because the flights offered were within the authorized time period and included only U.S. points for which China Eastern already had DOT permit or exemption authority.

China Eas tern states that s ince instituting U.S. service more than twenty years ago, it has exercised great vigilance to ensure that it has requested and received prior Department approval for a ll new operating authorizations. China Eastern asserts that certain

pe rsonnel simply were not aware in this particular instance that U.S. approval was needed, and mistakenly believed that the CTA approval, which was obtained prior to any marketing activities taking place, covered the U.S. portion of the codeshare

.

China Ea stern states that s ince being notified of the apparent violation, it immediately pulled all marketing and sales for this service. China Eastern also states that it cooperated

2 A “wet lease” is defined as a lease between direct air carriers by which the lessor provides all or part of the capacity of an aircraft, and its crew, including operations where the lessor is conducting services under a blocked space or code

- sharing arrang ement. 14 CFR 212.2 (emphasis added).

3 WestJet is the subject of a separate investigation by the Enforcement Office for its conduct in this

code

- sharing matter.3

fully with the investigation by the Enforcement Office and has undertaken signifi cant efforts to ensure that marketing and sale of third

- country codeshares does not take place until economic authority from the Department is obtained. Following the apparent violation its top management personnel initiated a thorough internal review of its U.S. authority and codeshare approval process, which included an evaluation of all applicable documents, collection of information, and in

- person and telephone meetings with personnel and key management. It has also adopted amendments to its internal procedures governing third

- country codeshares to require that approvals be obtained from all relevant government entities.

Decision

The Enforcement Office has carefully considered all of the information available to it, but

continues to believe that enfo rcement action is warranted. In order to avoid litigation, the

Enforcement Office and China Eastern have reached a settlement of this matter. Without admitting or denying the violations described above, China Eastern agree s to the issuance of this order to cease and desist from future violations of 49 U.S.C. §§ 41 3 01 and 41712, and to the assessment of $ 40,000 in compromise of potential civil penalties otherwise assessable against the carrier

. This compromise assessment is a ppropriate in view of the nature and extent of the violations in question, serves the public interest, and establishes a deterrent to future similar unlawful practices by China Eastern and other foreign air

carriers

.

This order is issued under the author ity contained in 49 CFR Part 1

.

ACCORDINGLY,

1. Based on the above discussion, we approve this settlement and the provisions of the order as being in the public interest;

2. We find that China Eastern Airlines Corporation Limited violated 49 U.S.C. § 41 3 01, as described above, by engaging in foreign air transportation without appropriate authority from the Department ;

3

. We find that, by engaging in the conduct described in paragraph s 2, above, China Eastern Airlines Corporation Limited engaged in an unfair and deceptive practice and an unfair method of competition in violation of 49 U.S.C. § 41712;

4

. We order China Eastern Airlines Corporation Limited and all other entities owned and controlled by or under common ownership with China Eastern Air lines Corporation

Limited and its successors and assignees to cease and desist from further violations of 49 U.S.C. §§ 413 01 and 41712;

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. We assess China Eastern Airlines Corporation Limited $ 40,000 in compromise of civil penalties that might otherwise be assessed for the violations desc ribed in ordering paragraphs 2

, and 3, above

. Of this total amount, $ 20 ,000 shall be due and payable within4

6 0 days of the issuance date of this order

. The remaining $ 20 ,000 shall become due and payable if, within one ye ar of the issuance date of this order, China Eastern Airlines Corporation Limited violates the cease and desist provision in ordering paragraph 4

, above, or fails to comply with the payment provisions in this ordering paragraph, in

which case

, the entire u npaid portion of the civil penalty shall become due and payable immediately ; and

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. Payments shall be made by wire transfer through the Federal Reserve Communications System, commonly known as "Fed Wire," to the account of the U.S. Treasury. The wire transfers shall be executed in accordance with the instructions

contained in the Attachment to this order. Failure to pay the penalty as prescribed shall subject China Eastern Airlines Corporation Limited to the assessment of interest, penalty,

and collec tion charges under the Debt Collection Act and to possible enforcement action for failure to comply with this order.

This order will become a final order of the Department 10 days after its service date unless a timely petition for review is filed or th e Dep artment takes review on its own

initiative.

BY:

BLANE A. WORKIE Acting Assistant General Counsel for

Aviation Enforcement and Proceedings

An electronic version of this document is available at www.regulations.gov